Dear Dr. Don,
I need an amortization schedule for a reverse mortgage. Do you take the total amount of principal and interest on a regular loan and add it to the principal? If it is a maximum loan at a fixed interest for a fixed term, is the interest figured on the original amount? Or is it figured on the increasing loan balance?
In other words, do the payments increase as the loan matures? It would be helpful if you know where I can find a reverse loan amortization.
-- Robert Reverses
Dear Robert,
An amortization schedule shows how the principal balance goes down over time with the loan payments on a self-amortized loan.
For example, the monthly loan payment on a conventional 30-year, fixed-rate loan is large enough to cover both the monthly interest expense and repay part of the principal balance. As the loan balance declines, more of the monthly payment goes toward principal repayment.
In the early years of the conventional mortgage, most of the monthly payment goes toward covering interest expense. In later years, most of the monthly payment goes toward paying down the principal.
Bankrate's "Mortgage payment calculator" includes an amortization schedule for conventional mortgages.
A reverse mortgage doesn't have loan payments, so there's no increase in payments over time. The loan is negatively amortized, with the loan balance increasing over time based on the loan's interest rate and the outstanding loan balance. The interest expense is based on the growing loan balance, so the interest expense increases each month.
There are tons of reverse mortgage calculators on the Web that will help you determine the largest reverse mortgage for which you qualify. I like the one on AARP.org.
However, I didn't find a reverse mortgage amortization schedule. What you can do instead is use Bankrate's Certificate of deposit calculator with monthly compounding to find the loan balance at different points out through time.